Question
Payday loans (Links to an external site.), a cash advance on a persons paycheck, are a form of credit that only require income and a
Payday loans (Links to an external site.), a cash advance on a persons paycheck, are a form of credit that only require income and a bank account. The borrower typically agrees to pay a fee, which acts like an interest rate, to the lender and is required to repay the loan at the time of his or her next paycheck. Recently, the government and private companies have added to the debate over payday loans.
Part 1: The typical payday loan comes with a fee of $15 for every $100 borrowed and is due in two weeks. Assume you borrow $100 under these terms: $15 fee and two-week maturity. What is the APR of the loan? What is the EAR of the loan? What accounts for the difference between the APR and EAR?
Part 2: Should the government regulate payday loans? Why or why not? If payday loans are legal, should private companies restrict access to them? Why or why not? Find and cite at least two articles to support your arguments.
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